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Hedge Funds Don’t Like Cenovus Energy Inc (CVE) Much

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Cenovus Energy Inc (NYSE:CVE) and determine whether the smart money was really smart about this stock.

Is Cenovus Energy Inc (NYSE:CVE) an attractive investment today? Investors who are in the know were becoming more confident. The number of bullish hedge fund bets inched up by 2 lately. Cenovus Energy Inc (NYSE:CVE) was in 26 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 31. Our calculations also showed that CVE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 24 hedge funds in our database with CVE holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a look at the new hedge fund action encompassing Cenovus Energy Inc (NYSE:CVE).

Hedge fund activity in Cenovus Energy Inc (NYSE:CVE)

At the end of the second quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in CVE a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CVE A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the biggest position in Cenovus Energy Inc (NYSE:CVE), worth close to $91.9 million, accounting for 0.6% of its total 13F portfolio. The second largest stake is held by Ken Griffin of Citadel Investment Group, with a $63.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions consist of Todd J. Kantor’s Encompass Capital Advisors, Len Kipp and Xavier Majic’s Maple Rock Capital and Steve Cohen’s Point72 Asset Management. In terms of the portfolio weights assigned to each position Maple Rock Capital allocated the biggest weight to Cenovus Energy Inc (NYSE:CVE), around 5.22% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, dishing out 5.18 percent of its 13F equity portfolio to CVE.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Encompass Capital Advisors, managed by Todd J. Kantor, established the most valuable position in Cenovus Energy Inc (NYSE:CVE). Encompass Capital Advisors had $38.9 million invested in the company at the end of the quarter. Len Kipp and Xavier Majic’s Maple Rock Capital also made a $26.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Brian J. Higgins’s King Street Capital, and Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors.

Let’s now review hedge fund activity in other stocks similar to Cenovus Energy Inc (NYSE:CVE). We will take a look at Signature Bank (NASDAQ:SBNY), Aramark (NYSE:ARMK), American Financial Group (NYSE:AFG), Polaris Inc. (NYSE:PII), Inphi Corporation (NYSE:IPHI), Autoliv Inc. (NYSE:ALV), and HD Supply Holdings Inc (NASDAQ:HDS). All of these stocks’ market caps resemble CVE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SBNY 24 305465 5
ARMK 34 597075 5
AFG 28 235585 4
PII 34 426967 10
IPHI 46 643116 10
ALV 22 542948 7
HDS 44 992771 4
Average 33.1 534847 6.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.1 hedge funds with bullish positions and the average amount invested in these stocks was $535 million. That figure was $315 million in CVE’s case. Inphi Corporation (NYSE:IPHI) is the most popular stock in this table. On the other hand Autoliv Inc. (NYSE:ALV) is the least popular one with only 22 bullish hedge fund positions. Cenovus Energy Inc (NYSE:CVE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CVE is 40.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately CVE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CVE investors were disappointed as the stock returned -16.7% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.